United States v. Galletti

• Decision Date: 23 March 2004
• Docket Number: No. 02-1389.,02-1389.
• Citation: 541 U.S. 114
• Parties: UNITED STATES v. GALLETTI ET AL.
• Court: U.S. Supreme Court

541 U.S. 114

UNITED STATES v. GALLETTI ET AL.

No. 02-1389.

Supreme Court of United States.

Argued January 12, 2004.

Decided March 23, 2004.

"[T]he amount of any tax imposed [by the Internal Revenue Code] shall be assessed within three years after the return was filed." 26 U.S.C. § 6501(a). If a tax is properly so assessed, the statute of limitations for collecting it is extended by 10 years from the assessment date. § 6502(a). Respondents were general partners of a partnership (hereinafter Partnership) that failed to pay significant federal employment taxes from 1992 to 1995. The Internal Revenue Service (IRS) timely assessed the Partnership, but the taxes were never paid. Respondents later filed for Chapter 13 bankruptcy protection, and the IRS then filed proof of claims against them for the Partnership's unpaid employment taxes. Respondents objected, arguing that the timely assessment of the Partnership did not extend the 3-year limitations period against the general partners, who had not been separately assessed within that period. The Bankruptcy Court and the District Court agreed and sustained respondents' objections. The Ninth Circuit affirmed, holding that since respondents are "taxpayers" under § 7701, which defines "taxpayer" to mean "any person subject to any internal revenue tax," they are also "taxpayers" under §§ 6203 and 6501. As such, the court held that the assessment against the Partnership extended the limitations period only with respect to the Partnership.

Held: The proper tax assessment against the Partnership suffices to extend the statute of limitations to collect the tax in a judicial proceeding from the general partners who are liable for the payment of the Partnership's debts. Pp. 119-124.

(a) Respondents argue that a valid assessment triggering the 10-year increase in the limitations period must name them individually, as they are primarily liable for the tax debt. They claim, first, that they are the relevant taxpayers under § 6203, which requires the assessment to be made by "recording the liability of the taxpayer." Although the Ninth Circuit correctly concluded that an individual partner can be a "taxpayer," § 6203 speaks of the taxpayer's "liability," which indicates that the relevant taxpayer must be determined. Here, the liability arose from the Partnership's failure to comply with § 3402(a)(1)'s requirement that an "employer [paying] wages" deduct and withhold employment taxes. And § 3403 makes clear that the "employer" that fails to withhold and submit the requisite employment taxes is the "liable" taxpayer. In this case, the Partnership is the "employer." Second, respondents claim that they are primarily liable for the tax debt because California law makes them jointly and severally liable for the Partnership's debts. However, to be primarily liable for this debt, respondents must show that they are the "employer." And, under California law, a partnership and its general partners are separate entities. Thus respondents cannot argue that, for all intents and purposes, imposing a tax directly on the Partnership is equivalent to imposing a tax directly on the general partners, but must instead prove that the tax liability was imposed both on the Partnership and on respondents as separate "employers." That respondents are jointly and severally liable for the Partnership's debts is irrelevant to this determination. Pp. 120-121.

(b) The Code does not require the Government to make separate assessments of a single tax debt against persons or entities secondarily liable for that debt in order for § 6502's extended limitations period to apply to judicial collection actions against those persons or entities. It is clear that "assessment" refers to little more than the calculation or recording of a tax liability, see, e. g., § 6201, and that it is the tax that is assessed, not the taxpayer, see, e. g., § 6501. The limitations period resulting from a proper assessment governs the time extension for enforcing the tax liability. United States v. Updike, 281 U.S. 489, 495. Once a tax has been properly assessed, nothing in the Code requires the IRS to duplicate its efforts by separately assessing the same tax against individuals or entities who are not the actual taxpayers but are, by reason of state law, liable for the taxpayer's debt. The assessment's consequences — the extension of the limitations period for collecting the debt — attach to the debt without reference to the special circumstances of the secondarily liable parties. Here, the tax was properly assessed against the Partnership, thereby extending the limitations period for collecting the debt. The United States now timely seeks to collect that debt in judicial proceedings against respondents. Pp. 121-124.

314 F. 3d 336, reversed and remanded.

THOMAS, J., delivered the opinion for a unanimous Court.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT.

Kent L. Jones argued the cause for the United States. With him on the briefs were Solicitor General Olson, Assistant Attorney General O'Connor, Deputy Solicitor General Hungar, Thomas J. Clark, and Andrea R. Tebbets.

David R. Haberbush argued the cause for respondents. With him on the brief were Joel Barry Feinberg, A. Lavar Taylor, and Charles F. Rosen.

JUSTICE THOMAS delivered the opinion of the Court.

Section 6501(a) of the Internal Revenue Code states that, except as otherwise provided, "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed . . . and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period." 26 U.S.C. § 6501(a). If a tax is properly assessed within three years, however, the statute of limitations for the collection of the tax is extended by 10 years from the date of assessment. § 6502(a). We must decide in this case whether, in order for the United States to avail itself of the 10-year increase in the statute of limitations for collection of a tax debt, it must assess the taxes not only against a partnership that is directly liable for the debt, but also against each individual partner who might be jointly and severally liable for the debts of the partnership. Under California law a partnership maintains a separate identity from its general partners, and the partners are only secondarily liable for the tax debts of the partnership, as they are for any debt of the partnership. Because, in this case, the only relevant "taxpayer" for purposes of §§ 6501-6502 is the partnership, we hold that the proper assessment of the tax against the partnership suffices to extend the statute of limitations for collection of the tax from the general partners who are liable for the payment of the partnership's debts. The Government's timely assessment of the tax against the partnership was sufficient to extend the statute of limitations to collect the tax in a judicial proceeding, whether from the partnership itself or from those liable for its debts.

I

Respondents, Abel Cosmo Galletti, Sarah Galletti, Francesco Briguglio, and Angela Briguglio, were general partners of Marina Cabrillo Company (Partnership). From 1992 to 1995, the Partnership failed to pay significant federal employment tax liabilities that it had incurred. Although the Internal Revenue Service (IRS) timely assessed those taxes against the Partnership in 1994, 1995, and 1996, the Partnership never satisfied the debt.

Respondents Abel and Sarah Galletti and respondents Francesco and Angela Briguglio filed joint petitions for relief under Chapter 13 of the Bankruptcy Code on October 20, 1999, and February 4, 2000, respectively. In the Gallettis' proceedings, the IRS filed a proof of claim in the amount of $395,179.89 for unpaid employment taxes assessed between January 1994 and July 1995 against the Partnership. In the Briguglios' proceedings, the IRS filed a proof of claim in the amount of $427,402.74. The proof of claim included secured claims totaling $403,264.06 for unpaid employment taxes assessed between January 1994 and November 1996 against the Partnership.

Respondents objected to the claims on the ground that they were not proven against the estates. Respondents did not dispute that under California law they are jointly and severally liable for the debts of the Partnership. Nor did they dispute that the IRS had properly assessed the taxes against the Partnership within the 3-year statute of limitations, thereby extending the limitations period for collection of the taxes by 10 years. Rather, respondents argued that the timely assessment of the Partnership extended the statute of limitations only against the Partnership. To extend the 3-year statute of limitations against the general partners, respondents argued, the IRS had to separately assess the general partners within the 3-year limitations period. Because it did not, and because the 3-year limitations period had expired, respondents argued that the IRS could no longer collect the debt from them. The Bankruptcy Court and the District Court agreed and sustained respondents' objections to the claims.

The Court of Appeals for the Ninth Circuit affirmed. The Government argued that the Code does not require that the individual partners be assessed within the 3-year period prescribed by § 6501 and that the IRS made a valid assessment of the taxpayer here because the Partnership is the only relevant "taxpayer." The Court of Appeals held that since respondents are "taxpayers" under § 7701(a)(14), which defines "taxpayer" to mean "any person subject to any internal revenue tax," they are also "taxpayers" under §§ 6203 and 6501. As such, the Court of Appeals held that "[t]he assessment against the Partnership extended the statute of limitations only with respect to the Partnership." 314 F. 3d 336, 340 (2002).

The Government argued in the alternative that because respondents conceded that they were liable...